• 4 minutes The Federal Reserve and Money...Aspects which are not widely known
  • 8 minutes How Far Have We Really Gotten With Alternative Energy
  • 12 minutes  What Russia has reached over three months diplomatic and military pressure on West ?
  • 14 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 4 hours Is Europe heading for winter of discontent with extensive gas shortages?
  • 3 days Once seen as fleeting, a new solar tech proves its lasting power
  • 5 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 9 hours Bloomberg - "Hedge Funds Hit by ‘Onerous’ ESG Rule Turn to Lawyers for Help"
Has OPEC+ Reached Peak Production Capacity?

Has OPEC+ Reached Peak Production Capacity?

As oil prices continue to…

Why $5 Gasoline Won’t Cause A Recession

Why $5 Gasoline Won’t Cause A Recession

While high oil and gasoline…

New ESG Rules Are Hurting American Farmers

New ESG Rules Are Hurting American Farmers

Small farms and ranches in…

Osama Rizvi

Osama Rizvi

Osama Rizvi is an economic and global oil market analyst who brings in a holistic point of view connecting geopolitics, economy and politics. He has…

More Info

Premium Content

Could The Iran Nuclear Deal Bring Oil Back Down?

  • Russia’s invasion of Ukraine on Thursday morning sent oil prices beyond $100 for the first time since 2014 as supply fears gripped an already bullish market.
  • In an extremely tight oil market with low spare capacity and high geopolitical risk, a successful Iran nuclear deal is the only event that could bring oil prices back down.
  • While an Iran nuclear deal does appear to be within reach, even that will struggle to bring prices down if the Russia and Ukraine crisis continues to escalate.

On Thursday morning, the 24th of February 2022, Putin gave a short speech in which he ordered a “special military operation” in the eastern region of Ukraine. This came a day after he delivered an aggressive speech, denying Ukraine its sovereignty and recognizing the independence of the Donetsk and Luhansk regions, situated on the eastern side of Ukraine. At the time of writing, there are missiles being fired and reports are coming that troops are nearing Kyiv, the capital. In response to this invasion, oil prices breached $100 for the first time since 2014. Given the condition of the overall global economy, with rampant inflation and impending interest rate hikes, there seems to be only one potential bearish factor in today’s markets. The restoration of the Iranian Nuclear Deal is the only event that could significantly cool down crude markets.

Ukraine

If the current conditions persist, there really is no limit to how high oil prices could rise. Even claims about $150 oil, which seemed unrealistic only a few days ago, have started to look possible after today. The risk and fear premium is at its peak, as the shadow of a full-blown war looms over markets. There are two potential scenarios here for the Ukraine crisis and oil prices.

One scenario involves a continued assault on Ukraine by Russia sparking a string of sanctions and reactions. In this scenario, oil prices could rise to $150 or higher. At that point, even a flurry of bearish events would struggle to bring oil back below $100 any time soon. In the second scenario, tensions between Russia and Ukraine would diffuse and a diplomatic solution would be reached. This second scenario seems highly unlikely given the recent escalation, but there is a chance that Putin has limited and specific goals in mind. If the second scenario does come to pass, there is only one event that could truly drag oil prices lower.

A successfully negotiated Iran nuclear deal could bring millions of barrels of oil to the markets and alter the fundamentals. This has the potential to cause a significant correction in oil markets. According to a Bloomberg article, Iran has been moving millions of barrels of oil into tankers since December in preparation for a deal. According to Kpler, Iran may have 65 to 80 million barrels on offshore tankers, the majority of which is condensate. Iran’s daily production can reach up to 3.4 mbpd within the first 3 months of a successful deal and may hit 3.7 after 6 months. That is a significant supply disruption for oil markets.

Iran

Gasoline prices have touched $3.53 at pumps in the U.S., which is the highest since the summer of 2014. A prolonged spell of such elevated gasoline prices can eat away at Biden’s political capital and may spell trouble for his elections. The Biden administration had already publicly asked OPEC+ to increase output and bring prices down - but the cartel didn’t comply.

As such, the Iran nuclear deal remains the only viable option to bring oil prices down significantly. Even then, the effect of the deal will depend on both its timing and how the Ukraine crisis develops. The deal seems to be moving closer. Iran appears to free some prisoners and the U.S. to unfreeze Iranian funds, in South Korean banks. Iran’s exports have already increased, touching 1 mbpd first time in the past 3 years (most went to China). Before sanctions, Iran used to export around 2.5 mbpd. This may come back if the deal is successfully negotiated. Iran has recently called on its Western partners to make certain decisions and “finish the job”.

If the tensions between Russia and Ukraine settle down and the Iran nuclear deal is then successfully concluded, oil prices might yet drop back down. Ultimately, it all depends on just how far Russia is willing to go with its invasion of Ukraine. 

By Osama Rizvi for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News